What does planning actually mean?

August 4, 2021

When someone thinks of planning, they may very well imagine that this involves a lot of technical stuff that is beyond them, but I would suggest that this is where an IFA comes in.     It never ceases to amaze me how many people do not do any planning and are then surprised when they get a tax bill, and ask me IN ARREARS what I can do to make it go away.  You won’t be surprised to know that in many cases I can do very little because actions needed to have been taken BEFORE certain events. 

INCOME TAX –  you should always use the personal allowances that we all have, and the main example is husband and wife.   If for example, a husband has got all the household income taxed on him – he may very well be taxed at 40%, whereas his wife might not even be taxable at all.      If a couple actually planned things out, certain income streams could be hived off to a wife and that would then allow here to use her personal allowances of £12,500 a year.   There is also the £2,000 dividend allowance, and also the personal savings allowance of £1,000.      If one spouse is taxable at 40% and the other at 20% with room to spare, then they can save tax of 20% by moving some income from the higher rate taxpayer to the lower rate – if it is possible to move of course.  

PARTNERSHIPS – Don’t forget that if you have joint income with your spouse, this doesn’t need to be shared 50/50 – it can be shared basically how you like.   It’s not the first time I have shared this 99%/1% because one spouse is paying tax at 40% – and the other 20%.

INHERITANCE TAX –  yes I know fine well that most people don’t look at this until it is far too late, but instead of Inheritance Tax read Voluntary tax.   Given a bit of time, I can invariably get a couple’s potential tax bill down from hundreds of thousands to nil – or close to nil as is possible.     If you PLAN for IHT, you can reduce it quite considerably, and the alternative is true – because if you do nothing about it and wait until it hits you in the face, then you will pay dearly for it.    I have seen this so many times.      

All we are doing with these tips is using the allowances that have been given by HMRC – use them to the full or lose them. It’s as simple as that.

There is one of these sayings that I have seen on banners from motivational people – that says “Failure to plan is planning to fail”, and you know what – IT’S CORRECT.

Don’t wait for a disaster to happen – contact MAP now and start your planning.

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